Mergers and acquisitions (M&A) and capital raising activity in the global mining industry have fallen to the lowest levels in a decade due to “a lack of urgency over investment, given the relative lack of competition for assets,” according to a report by Ernst & Young LLP.
Mergers and acquisitions fell 49% to $44.6 billion in 2014, which is the lowest it has been since 2004. The number of deals concluded has fallen 23% to 544 as companies cut back on spending and private equity into the sector proved harder to come by.
“The mining and metals industry lags a broader confidence revival in equity markets, while price weakness continues to place stress on certain sectors of the industry, despite considerable efforts by management to strengthen balance sheets and improve margins and returns,” the report revealed.
As a result, the mining and metals industry lags a broader confidence revival in equity markets, while price weakness continues to place stress on certain sectors of the industry, despite considerable efforts by management to strengthen balance sheets and improve margins and returns.
“For those brave enough to invest against the cycle, there would appear to be good buy-side opportunities, albeit driven from a place of distress and opportunism, rather than out-and-out growth-seeking. The prospect of large-scale M&A remains unlikely for those looking to win back the hearts and minds of investors, such as the industry’s majors,” the report added.
Looking at the remainder of 2014, however, some standout deals and hostile bids over the first half, combined with a strong deal pipeline and substantial capital waiting to be deployed by mining-focused funds, suggest that momentum is building. The recent and relatively rapid rise in the share prices of major mining and metals companies, on the back of improving base metals and gold prices, may prove to be a catalyst.
“With a volatile outlook for mining and metals, the global sector is focused on cost optimization and productivity improvement, while poised for value-based growth opportunities as they arise. The sector also faces the increased challenges of changing expectations in the maintenance of its social license to operate, skills shortages, effectively executing capital projects and meeting government revenue expectations,” the report concluded.
Mining M&A has hit rock bottom – can it drop even further? Add your opinion to the comments section below!
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